Construction’s return quicker than expected, but uncertainty remains

Construction returned to site more quickly than expected following the coronavirus lockdown, however output is still expected to fall by more than a fifth this year, and uncertainty remains.

That’s according to the Construction Products Association
(CPA), which has forecast a 20.6% fall in output for 2020. Private housing and
commercial are expected to be the hardest-hit sectors, down 33% and 29%
respectively.

Nonetheless, the CPA found that activity on sites returned
more quickly than expected, driven by completions of existing projects from
mid-May onwards, as well as pent-up demand for refurbishments that couldn’t take
place during the restrictions.

But the CPA warned that uncertainty still remains around
longer-term demand and future new orders given the state of the wider economy.

In housing, completions have been prioritised since the
easing of lockdown due to the first phase of construction for Help to Buy
requiring completion by 31 December, and a stamp duty holiday announced by the
government. But the CPA said long-term confidence for new developments seems fragile,
with the prospect for rising unemployment and signs that lender appetite is
worsening.

Meanwhile in the commercial sector has been hit by falling consumer
confidence at the same time as grappling with larger structural shifts towards
e-commerce, accelerated by the coronavirus shutdown of non-essential retail and
the potential shift towards homeworking, reducing the demand for city centre
office developments and diverting retail spending further away from high
streets to online.

The CPA warned that these larger shifts in the UK economy are
“crucial” to the construction industry’s fortunes, claiming that the £5bn “New
Deal” of construction investment announced under the government slogan ‘build,
build, build’, was largely a re-announcement of existing budgets. It claimed
the “New Deal” will have “little impact” on boosting construction activity
beyond what was already expected. It added that Chancellor Rishi Sunak’s recent
Summer Statement could “potentially have a significant impact” on construction,
but the extent of this is still unclear given “the lack of new funding and a
lack of clear strategy” on the implementation of the £2bn Green Homes Grant.

The CPA’s economics director, Noble Francis, said: “The
quicker-than-expected return to sites is certainly a positive sign, and
evidence of the CPA’s main scenario of a ‘tick’ shape sharp recession and
recovery, with coronavirus a temporary issue primarily affecting economic
activity in the first half of 2020. When social distancing eased in mid-May,
sustained UK economic recovery from June was enabled as services that involve
person-to-person interaction gradually opened.

“There still remains a significant number of long term
uncertainties for the UK economy though, including: unemployment rates as
furlough comes to an end, the uptake of homeworking, the potential of a second
wave of infection, and, of course, the end of the Brexit implementation period
in December. While government plans for a £2bn Green Homes Grant is welcomed
news for the industry, the key will be in the delivery of this policy, ensuring
it provides long-term, patient finance rather than being spent quickly and
thoughtlessly.

“While next year we anticipate construction output rising 18%
overall, it is worth noting that this is compared with a low base of activity
in 2020 and will still be 6.4% lower than pre-coronavirus levels. The delivery
of major infrastructure projects will be crucial to growth in 2021, with
activity on site less affected by social distancing and major projects like HS2
driving significant growth for the sector.”